Tax increment financing has been a widely used economic development tool locally and across Ohio in recent years. Despite its growing popularity, most people don't fully understand the rather complex workings of TIF. At its core, TIF operates on a relatively simple principle. Properties inside designated TIF districts are exempted from real estate taxes and owners instead make identical payments to the government that then uses the money to pay for necessary infrastructure im-provements in the TIF zone. But the devil is in the details. There are a number of rules and recent changes in state law that affect how TIFs, which are sometimes call PILOTs, or payments in lieu of taxes, are used. Another issue is how school funding is affected by TIFs. Additionally, there are issues involving lost tax revenue to other government entities. Celina city officials have created seven TIF districts, mostly in areas of town where imminent development is expected. Mercer County has four other TIF districts set up, including two just outside of Celina. No new TIFs are likely in Celina because the major benefit has been taken away by changes to the law authored by state legislators, city officials said. Ohio law used to not count the valuation of new development against the school district's state funding, but that is no longer the case, except for single-property TIF districts. Governments can borrow against TIF revenue, which Celina city officials plan to do to pay for the estimated $2 million West Bank Rotary Walkway, a proposed mile-long path along the city's lakefront. City officials are confident the TIF will generate enough money to make the annual payments because most of the property owners in the zone signed the necessary development agreements. "They obviously were motivated to sign the agreements because most of them want to see the walkway project happen," Celina community development consultant Kent Bryan said. Celina City Council members have approved a bond issue to borrow the necessary money, but administration officials have not yet borrowed the money. There are a number of issues to consider when setting up TIF districts. School districts usually want lost tax revenue replaced and the city, county and township all lose property tax revenue on new development in TIF districts. The amount of real estate taxes that go to those government entities is relatively small, but can add up over many years. By law, TIFs can run for 30 years. TIF revenue can be used to pay for roads and highways, environmental remediation, land acquisition, demolition and cleanup of blighted properties, storm water and flood remediation projects, extension of utilities and other projects that benefit the public. "They need to be looked at individually," Mercer County Auditor Mark Giesige said. "You have to look at the costs versus the rewards." A TIF set up by the county years ago to help fund new infrastructure near the Celina Aluminum Precision Technology (CAPT) plant is an ideal use of a TIF, Giesige said. "CAPT is the poster child for a good TIF," Giesige said. The CAPT TIF helped build roads and other necessary infrastructure the government would have otherwise had to borrow money to help build. In return, the community got a new company that has expanded numerous times through the years, building the local tax base. There are some potential risks when governments create TIF districts, especially if the government is borrowing money against future TIF revenue. "There is an inherent predisposition to assume that assessed valuation will always increase. This is not always true for commercial properties which can become blighted over time," said an article in the May/June 2002 Ohio Investor report. Governments can protect themselves from such situations by requiring property owners who plan developments in TIF zones to agree to make minimum TIF payments that are high enough to cover debt service payments on infrastructure projects. Government officials also should consider the fiscal health of the property owners who are launching new development, the Ohio Investor report said. "TIFs are a powerful economic development tool. Nevertheless, when a local government agrees to issue TIF bonds, it should do so with its eyes wide open," the same report said. "Local governments are often so worried about losing an attractive economic development opportunity that they assume a disproportionate share of the risk."